Concept-of-the-month-Earn-out-finenza

kicker is a right, an exercisable warrant, that is added to a debt instrument as an incentive for potential investors, giving the debt holder the potential option to buy shares in the issuer. It is used exclusively for the benefit of lenders to increase their expected return on investment (ROI), as it allows them to participate in any increase in the value of the equity property.

The lender provides a loan at a lower interest rate and, in return, obtains an equity position in the borrower’s business. The equity-kicker is structured as a conditional reward, in which the lender obtains an equity stake that will be paid off at a future date when the company reaches specific performance targets.

Most companies that offer a built-in equity-kicker option are unable to access credit from traditional lenders because they are early stage companies that have not yet accumulated enough assets. Equity-kickers are often used for leveraged buyouts (LBOs), management buyouts (MBOs), and capital recapitalizations, as they are considered too risky for traditional financing offered by senior and guaranteed lenders.

Other concepts of the month

Concept of the month Vendor Due diligence

Concept of the month Vendor Due diligence

Unlike buy-side due diligence, in vendor due diligence (VDD) it is the seller himself who orders the audit process, thus demonstrating the authenticity of the financial statements offered about his company to potential buyers. Thus, the seller requests an independent...

read more
concept of the month Locked-box

concept of the month Locked-box

Locked-box mechanisms is used by the selling dealer to allowed him to ensure the operation and, I addition, cover the increase in value of the company are the cash and debt adjustment and the locked-box. In the locked-box, the parties agree on a fixed price based on...

read more
Concept of the month subordinated debt

Concept of the month subordinated debt

Subordinated debt is a fixed income instrument with characteristics inferior to bank issues since its holder has a lower collection capacity offset by higher profitability, compared to other debt assets. It is halfway between debt and equity; It serves to complement...

read more